Gold: Neither a Borrower nor a Lender Be

The global financial system is highly levered, with no margin for safety.
A leaking sound can be heard. So much for record highs and hopes of prosperity.
All bubbles require the availability of cheap credit, but after three rounds
of quantitative easing (creating money to buy assets), the beginning of the
end of cheap credit has finally begun. Real interest rates are creeping up,
currencies are collapsing, $3 trillion of stock prices have been erased, and
emerging markets are the first casualty. This exit was never promised to be
pain-free.

The problem is that central banks waited too long to end the monetary expansion
and return to normalization. Manipulating interest rates by central banks is
akin to turning supertankers around in a bad storm - it can only be done slowly.
Markets, addicted to cheap money, have been hit with a classic one-two punch.

The Fed has Become Part of the Problem

First, the mistakes that caused the collapse of 2008 and the Great Recession
are being repeated again in the form of much more leverage and contagion. We
have seen this movie before. In the past, the Fed's easy money created the
tech bubble in the nineties, the housing bubble and Greenspan's "irrational
exuberant" market. This time, the sequel has rounds and rounds of monetary
stimulus causing a debt-fueled stock market boom but little was said of the
significant risks. Financial moral hazard was abandoned again as investors
believe the Fed will always bail them out by using monetary policy to lift
stock prices to shield them from losses. Margin debtrose to all-time highs
in search for yield at the expense of quality. However, this time instead of
a Lehman or subprime meltdown, we expect debt default fears and concern over
the sovereign credit of the most powerful economy in the world. Our logic is
that America's repeated rounds of quantitative easing have quintupled the size
of the central bank's balance sheet that caused the stock market boom but will
end in one of history's biggest financial bust. The world's largest balance
sheet has grown from $850 billion to over $4.1 trillion exacerbated by a debt
load that has grown from $10 trillion to over $17 trillion. In only five years,
Mr. Obama has racked up as much new debt as all the presidents combined in
America's 227 years, and his second term is not even over. Even with tapering
Mr. Obama will spend $1 billion every year.

Until recently, the US dollar remained relatively strong. However, America's
loose monetary policy created an excess of dollars and the dollar has recently
lost value. The dollar was supposed to be risk-free but the Fed's unorthodox
stimulus policies caused a global fallout, particularly among the emerging
markets which depended upon the Fed's largesse to keep interest rates low in
order to finance their outsized deficits. The recent uptick in rates has caused
a surge in borrowing costs and a looming painful readjustment period, raises
the risk of a much feared currency war. A move up against the dollar will hurt
a country's exports and a move down will stoke inflation. Ghana just increased
its rates two percent to 18 percent. Ukraine's 10 years are 32 percent. The
depreciation of Argentina's peso is just beginning. Funds doing "carry trades",
borrowing in cheap dollars and buying riskier currencies are reversing the
trades, creating big distortions.

The global ramifications of America's fiscal follies threatens then to drag
down weaker nations like Argentina as well as stronger ones like China. Fundamentally,
the US has become less and less a factor in trade. Exports for example make
up less than 10 percent of GDP, while imports make up only 5 percent of world
GDP. What the US produces in great amount is money. That is the problem. And
what of the consequences of all those dollars that have been printed? With
the printing of fewer dollars, it removes a major prop under the value of that
dollar. We believe that this uncertainty will weigh heavily on the greenback,
particularly since America's financial situation is deteriorating further.
Debt on debt is not good. The holder of this debt and America's creditors should
beware.

Stealth Inflation is Alive

At the same time, the decline in inflation coincided with the biggest bond
boom in history, spawning financial bubbles and even soaring asset prices.
Balance sheets became further stretched with investors eschewing risk hedges
like gold, convinced that all is well and inflation will remain benign. But
that does not seem likely. There is every reason to believe this Keynesian
medicine of deficit spending is akin to the casino's mantra that if you bet
enough money enough times, you will eventually win. As before, the Fed appears
to have lost control over demand. In fact, the second sandbagging punch is
inflation, which is a double whammy because the real cost of servicing of debt
actually goes down. While the normal value of debt doesn't change, the actual
relative amount declines with debtors winning and creditors losing. Rising
prices reduces the buying power of fixed interest payments. Inflation is alive,
but it is stealth inflation. Third Way, a centrist think-tank suggests that
so called big ticket items such as house prices quadrupled between 1977 and
2012. However, during the same period, a "stealth inflation" in personal health
care expenditures and college tuition fees rose tenfold hollowing out a beleaguered
middle class. Of course taxes too have skyrocketed.

Then there is the jump in farmland which increased 12 percent this year. Wine,
classic cars and West Texas oil is up four percent from last year, the highest
since 2008. Inflation was exported to emerging markets, such as China and that
hot money has become globalized, returning to the West in higher inflation.
Paradoxically western governments have been friendly to inflation and their
policy responses always too late. The obvious solution is to abandon their
profligacy and bring back sound monetary policies but unfortunately that does
not appear to be in the cards. Gold is a good thing to have.

Big Government, Big Problems

Markets too have become overly politicized in part because of the need to
finance the government's insatiable appetite for debt. Too often, policy interventions
have become commonplace. The much delayed Volcker Rule, for example, restricted
the behavior of the financial sector but it did much more, it also gave more
powers to the central government. The capital markets conveniently became everybody's
favourite villain, vilified by everyone from the Pope, to hizzoner of New York
led of course by the Obama Administration. Ironically Wikileaks and Mr. Snowdon
unearthed the magnitude of the government's involvement, including the day
to day involvement in our markets. Since then, benchmarks such as LIBOR rates,
the London gold fix and currencies all face regulatory scrutiny because of
manipulation and the big banks have been hit with multi-billion big settlements.
These benchmarks are the basis for the trillion dollar derivative markets,
where Wall Street and others reaped big profits.

Free markets have been demonized and the rationale for the need to control
these markets is seen as the cure. US authorities have even requested information
on the hiring practices of the big US banks and multi-nationals over whether
they have employed certain Chinese for their connections in another subtle
slight at China. Yet this much practiced form of cronyism is ironically part
of the DNA of the American political scene. We only have to look at the dynastic
Rockfellers or Kennedys or the Bushes or even the Clintons to see how family
influence can help in high places. Congress itself has joined the White House
and big government is seen as the panacea against big business and big labour.
Capitalism is actually under fire from within.

Europe, The Weak Link

We believe, the long awaited upturn in the business cycle has caused a conflict
between the government and private sector as both must compete for capital,
particularly in Europe. The European Central Bank has not sorted out its problems
and there is another delay over its long awaited banking union. Solutions are
just kicked down the road despite running on razor thin capital cushions. The
massive government spending spree left a huge hangover of record debt levels
leaving other central banks vulnerable to an uptick in interest rates which
could pose catastrophic losses on creditors making them even more reluctant
to finance sovereign debt. Of course structural reforms could have eased those
problem as would the restructuring of this mammoth debt, but both are an anathema
to countries reluctant to go down the path of austerity.

Europe remains the weak link in the chain. Mario Draghi's famous pledge to
do "whatever it takes" to save the euro, bought time but policymakers wasted
that time avoiding necessary decisions, postponing the inevitable. That pledge
has yet to be tested. France and Italy frittered away the time and an extortion-type "Robin
Hood" tax policy has become the policy du jour. In the interim gold will be
a good thing to have.

America's Fiscal Follies Has Weakened the Greenback

The US dollar has a monopoly as the world's currency but the uncertainty created
by the Fed's withdrawal has caused a massive exodus, spilling over into the
rest of the world. To be sure many emerging countries question whether the
volatility of the dollar is a good bet any more. The thirst for dollars seems
to be ebbing among America's trading partners. Some of them are weaning themselves
already. Russia, Brazil and South Korea have deepened their local markets as
an optional funding tool.

Many emerging countries remember the 1997 Asian financial crisis when their
dependence on the dollar caused so much damage that some nations never fully
recovered. To be sure, taken together the fallout from the endless rounds of
monetary stimulus, Washington's dysfunction and rising debt has prompted many
to reassess their reliance on US economic policy and the dollar based international
monetary system. China's desire to loosen the dollar's dominance is also because
of another threat. Money is power. In the past, America has instituted a financial
blockade of Iran and isolated other nations. For that reason, America's exorbitant
privilege is ending. Underlying all this is that the average percentage of
dollars in reserves peaked at almost eighty percent in the early nineties but
has fallen to less than sixty percent of reserves today. Countries no longer
are satisfied to have the global currency subject to American politics and
a government reluctant to make good choices.

China has some $3.7 trillion of foreign exchange reserves of which $1.27 trillion
is in treasury debt. If they sell only a small amount of treasuries, US bonds
yields would soar, rattle the market and hurt their own massive holdings. We
believe the biggest risk then is that the Fed's unwinding will have an unknown
impact on our financial markets - another Black Swan event. To be sure, a weaker
dollar would spell calamity and gold as a store of value would be a good thing
to have.

China, Today and Tomorrow

While, the Chinese renminbi isn't soon to replace the dollar, other currencies
and gold are being used as substitutes. China is now the world's largest trader
and the renminbi is increasingly being used for trade. Beijing has loosened
capital controls, promoting the international use of the renminbi. China's
banks are big, setting up international bases and opening its capital markets.
China has also liberalised its government bond markets giving a bigger share
to consumers. Much is made of China's debt levels which represents more than
100 percent of GDP. Local government debt levels in China have risen to almost
$3 trillion in less than three years, however, unlike the United States, the
Chinese debt is owed to themselves. In comparison, about half of America's
debt is held by foreigners, with the bulk owed to China and Japan. China's
voracious appetite for raw materials and much of their debt can always be financed
internally.

What's more the West is more dependent upon financially strapped households
and states and rather than address its towering debt, the government prints
more money as the solution. This time, Beijing is pursuing a new reform agenda,
in part to extinguish its bubbles, something that the Americans have yet to
learn. It seems easy to criticize China's mounting debt load but the US should
solve its own debt problems before criticizing others.

Neither a Borrower nor a Lender Be

The end is also in sight for fiat gold or paper gold. Derivatives have become
a big part of our lives and like chips at a casino, become tools of the capital
markets. These "weapons of mass destruction" almost took down the financial
system when the edifice of Wall Street's biggest firms imploded and were found
to be worthless. The same thing is happening in the gold market where high
frequency trading (HFT), algorithms and spoofing have become commonplace. Comex
gold contracts which can be printed in unlimited quantities have at least a
half dozen times last year, contributed to the drop in gold. Comex is a commodities
futures exchange for the buying and selling of future contracts used by everyone
from Exchange Traded Funds (ETFs) to the big Wall Street banks but is just
another casino for speculators to trade paper futures electronicly as proxies
for gold. These products are sold with the promise that all are fungible gold.
Wrong. Speculators have amassed huge short positions and these highly leveraged
bets must eventually be unwound or covered.

In fact, the synchronised dumping of some 800 tonnes of futures last year
created a rush for physical gold such that Asian demand has taken virtually
all of the western world's output as well as from the gold Exchange Traded
Funds (ETFs). Physical gold in Asia is selling at a premium as well as huge
premiums for kilo bars on the Shanghai Gold Exchange. Asian and Middle East
demand have dominated the physical delivery markets. Gold jewellery demand
alone increased more than a third in the first nine months of last year. Chinese
demand is estimated at some 1,200 tonnes of gold, overtaking India as the world's
biggest consumer of gold. Gold has shifted from the West to the East. The Commodity
Futures Trading Commission (CFTC) releases data every week and Comex deliverable
ounces have collapsed from something like 7 million ounces to less than 500,000
ounces. While the shenanigans on Comex have kept deliveries low, something
like 30 percent of the gold contracts has been delivered on the Shanghai Gold
Exchange raising the spectre of a potential short squeeze akin to the classic "run
on the bank". China is also the largest producer of gold, producing some 440
tonnes last year. That production is expected to be added to the People's Bank
of China (PBOC) reserves at 1,054 tonnes, last recorded in 2009.

Geopolitical Influences Boost Gold

Meanwhile, central bank demand has also skyrocketed. Germany's Bundesbank
for example, requested the repatriation of only 300 tonnes from their 1,500
tonne reserve held by the Americans dating back to reparations. However, only
37 tonnes was returned and the Germans were told that it will take the NY Fed
something like seven years to repatriate the balance, which raisies questions
whether their gold has actually gone missing or, is it a default?. Venezuela
was more fortunate repatriating 160 tonnes of gold lately. Since 2007, Russia
has tripled its gold reserves. There is a shortage of gold, physical gold.

The short squeeze will also come a time when the building blocks for the resumption
of gold's bull market are falling into place. From a political point of view,
the much celebrated Arab Spring removed dictators but instead spawned a new
crop of dictators with the possible exception of Tunisia. Without the old-time
dictators, the Middle East has deteriorated into clashing sects and tribes.
This time, oil is being used to fund the different sectarian groups who have
become proxies for the major powers. The geo-political balance has tilted to
North America with shale gas and technology lowering gas prices but Europe
is still plagued by high gas and electricity prices. Middle East politics are
set to change. We believe that the geopolitical conflict over energy will renew
tensions and gold will be a good to have.

Gold is a Beneficiary of Tapering

Gold prices perhaps more than other asset depends on market sentiment. In
fact, it is a barometer of investor anxiety and often likened to the canary
in the gold mine. Demand is only one of many factors affecting the gold price
as does the rate of inflation. The World Gold Council reported that total world-wide
sales of gold jewelry were up 20 percent in 2013. We believe the biggest factor
driving gold prices is the behavior of investors. Gold had a twelve year bull
run because central banks pursued an accommodative monetary stance fueled in
part by two unfunded wars, Wall Street's bailout and three rounds of quantitative
easing. We believe the key driver is that gold is an alternative investment
to the dollar for many central banks. Since tapering began, gold has been the
best performing asset. Gold has bottomed, technically bouncing off the $1,180
lows three times and has now broken out of its trading range. We expect gold
to reach $2,000 per ounce this year resuming its twelve year bull run. Still
if the doomsayers are right and, problems do arise such as another Cyprus and
Greece, which resulted in the seizure of depositors' assets, gold will ratchet
up, not down, as the spike in demand for physical gold will squeeze the paper
players further.

Simply, the global financial system is stuffed with dollars , in part due
to the rapid money supply growth of 10 percent plus per annum in recent years.
The Fed remains the world's largest holder of gold, yet supplies are not growing
annually. If gold is a finite currency, its value then against not just the
dollar, but other fiat currencies, must rise. And, zero interest rates means
the yield on gold matters even less. It may not be an inflation hedge today,
but the debasement of currencies, economic stagnation, tapering and record
debt levels make gold a better store of value today.

Recommendation: Peak Gold

The gold mining industry is in a funk, after recording more than $100 billion
of writedowns. Moreover, gold grades have slipped, falling from 4.6 g/t in
1998 to 1.1g/t. As a result no longer is the industry prepared to pay $1,000
an ounce and instead are focused on profitability. Exploration budgets have
been pared back and capital spending has been shelved at a time when a $1,200
gold price approximates the breakeven price for many producers.

The dilemma for the gold mining industry is that the low hanging fruit has
been plucked. In recent times, the economics of gold deposits have been constrained
by size, grade and lack of capital. Of the fifty or so undeveloped deposits,
only seven are in excess 5 g/t or 0.145 opt.

With so few undeveloped deposits on the horizon, we believe that the best
ounces are in the gold miners' backyard so we would focus on those producers
with ounces in the ground which today are valued at less than $200 market cap
per ounce of in-situ reserves. Of note that a review of 100 gold companies'
projects with PEAs or PFS stage, with capex and opex of $1,000 an ounce, only
20 possess double digit IRRs.

Thus falling gold prices, squeezed reserves and uneconomic projects are fueling
investor demands for profitability and we believe a "harvest" approach would
be better off. We also believe there is a need for more consolidation in the
mining industry to better reduce costs and shutdown uneconomic projects. Balance
sheets will be important. As for the industry, the seeds for its revival has
been planted. Less gold is expected to come into the market. We estimate the
industry has some 22,000 tonnes of in-situ reserves which is the largest unallocated
resource in the world, however those reserves will cost more than $1,000 an
ounce to extract.

This Bull Market Has Just Begun

Importantly, the price of gold has fallen to levels that approximate the all-in
cost of most of the gold miners. As such, we believe mining stocks reached
bottom at the end of last year, just when the bandwagon emptied. Year to date,
gold has jumped more than ten percent and gold stocks have increased almost
thirty percent. While there are expectations that this is just a dead cat bounce,
investors forget that the gold mines not only changed CEOs but also boosted
profitability by closing down marginal operations and in some cases, mining
higher grades. The gold mining industry has undergone massive change - it is
profitable. To be sure, the junior miners were more badly hurt and more than
50 percent of the companies on the TSX Venture have empty treasuries. Importantly,
those deposits won't disappear but the companies might. We believe that the
mining industry will continue to consolidate because of the growing shortage
of reserves. Ironically gold production increased four percent last year, due
in part to the billions spent during the hey days. This time with fewer deposits
found and fewer being financed, less gold will come to the market. However,
the most common question that we've been asked, is what will turn mining stocks
around?

We believe that has happened already, and indications are that the huge private
equity players are kicking the tires of many of the cast-offs of the senior
producers. We believe these private equity funds will even resort to privatizing
some of these players because reserves are very cheap, a prerequisite for some
of these vulture players. In addition some of the big commodity trading houses
have also coveted some of the producers, so we expect that both sets of funds
together with sovereign entities will beat many of the institutions at their
own game. Gold stocks are too cheap.

The majors all have problems as a legacy of the heyday. Barrick has suspended
Pascua Lama, which is a good thing. Cerro Casales and Donlin Creek are on the
shelf and won't go away until higher metal prices. Goldcorp is bringing on
Eleonore and building out Cochenour which will be part of the Red Lake complex.
El Morro in Chile is a non-starter at current prices. Kinross has wound down
Tasiast in Mauritania, but even at much reduced pace, Tasiast is a money loser
at current prices. Newmont's Akyem construction is well advanced and should
be a contributor, but big Conga is a nonstarter. Newmont's Indonesian assets
are also a question mark and closer to home, Phoenix is a nonstarter.

We like the senior producers like Barrick because of the belief that the world's
largest producer has turned the corner and is in the midst of successfully
checking off many of the ticked boxes that caused Barrick to lose some fifty
percent of its value. Among the intermediates, we continue to recommend Agnico
Eagle who are masters at execution, Eldorado for its broad diversified base
and B2 Gold for its growth profile (newly covered). Among the juniors, we like
McEwen Mining, St. Andrew Goldfields, and believe that Osisko is a trade in
wake of the Goldcorp take-under.

The silver producers have also been badly beaten up and silver has dropped
below the industry's cost of production. Unlike the gold market, ETFs sales
are not a problem for silver. We like silver's prospects and continue to recommend
Excellon, because it is the highest grade silver producer in Mexico, has a
great balance sheet and growing production profile.

Agnico Eagle Mines

Agnico's last quarter results were better than consensus. Agnico also reduced
its dividend but kept its 31 year dividend record intact. Sean Boyd has reduced
both capital spending and operating costs and the company has benefited from
execution and fewer problems at Meadowbank which will be a major contributor.
La Ronde, La India, Kittila, Goldex and Pinos Altos are the main drivers of
the company. Agnico has been aggressively boosting output and a skunkworks
of juniors does not stretch its balance sheet but gives Agnico a low cost window
on future discoveries. Agnico is a buy here.

Allied Nevada Gold Corp.

Allied reported a solid fourth quarter. Randy Buffington, the new president
and CEO has initiated a milling and oxidation study (AAO process) and a game
plan to process Allied's massive Hycroft sulphides at a reasonable price tag.
The new Merrill-Crowe plant was started in October, boosting output. Allied
reported gold output of 190,000 ounces and about 2 million ounces of silver.
We like Allied down here and believe the AAO process has merit. This year,
Allied should produce 240,000 ounces and 2 million ounces of silver at an adjusted
cost of $850 per ounce.

Barrick Gold Corp.

Barrick cleaned house taking another big writedown in the quarter and pared
about one million money losing ounces from production. Barrick has gradually
checked off all the boxes, restoring balance sheet with the $3 billion offering
and in suspending the huge Pascau Lama high in the Andes also gives it financial
flexibility. Changes at the board level responded to governance concerns and
with Peter Munk retiring in April, we expect further board changes. Barrick
has taken $11.5 billion in impairment charges as part of its cleaning house
moves. The new broom also swept the sale of six high cost mines and the focus
on profitability is constructive. The world's largest gold producer`s costs
are now among the lowest cost quartile. Barrick has a long reserve life, improved
quality assets and a renewed focus led by soon-to-be Chair, John Thornton.
Barrick has turned the corner and is a buy here.

Centerra Gold Inc.

Centerra announced proven and probable gold reserves at 10.2 million ounces
down slightly down from 11.1 million ounces last year. Given its ongoing dispute
with the government, the decline was not a surprise. The yearend reserves were
calculated at $1,300 per ounce. Centerra's flagship Kumtor Mine is in the Republic
of Kyrgyz, and reserves declined because the company remains locked in a battle
with the government over the ultimate government's ownership stake. We believe
that this will be resolved soon. Meantime, Centerra has an excellent balance
sheet and the stock is cheap at this level. Centerra has a great balance sheet
with $425 million of cash and is in need of an acquisition.

Detour Gold Corporation

Detour updated its mine plan at 100 percent Detour Lake gold project doubling
production from last year and reported life of mine (LOM) average annual gold
production of 660,000 ounces and a dramatic lowering of total cash cost to
$723 an ounce. Importantly, Detour's mine life is almost 22 years and proven
and probable reserves stands at 15.5 million ounces. Sustaining capital over
the life of the mine is estimated at $1.1 billion which is easily manageable.
The company also intends to increase name plate capacity at 55,000 tonnes per
day shortly and the process plant could be increased to 61,000 tonnes per day
over a four year period. We believe that the new mine plan and new president,
Paul Martin is welcome news and with the mine reaching commercial production,
we expect that Detour would be an excellent tidbit for one of the majors. Detour
is planning a small exploration program since only 17 percent of its lands
have been explored. Buy.

Eldorado Gold Corp.

Eldorado continues to do well with development continues at Skouries, in Greece.
Skouries will produce in 2016, with a capital cost of $200 million and so far
$41 million has been spent. Although Eldorado is the largest foreign producer
in China, the country took a $800 million impairment change for China and the
company is still waiting for its final permit for Eastern Dragon. Eldorado
Gold's production last year was about 720,000 ounces which was an increase
over the year before. Gold output will grow at an additional six percent this
year and all-in costs are expected to be between $915 to $985. Little is said
of Stratoni in Greece which will process grades of 215,000 tonnes of ore with
a modest capital cost. At Olympias, Eldorado is processing tailings as part
of the cleanup. Eldorado has a growing production profile and a management
good at execution. Buy.

Iamgold Corporation

Iamgold with six mines continues to disappoint and its development projects
are too expensive such as Côté Lake project in Ontario. The company
took a $772 million impairment charge due to lower gold prices. Iamgold's production
will decline by 20 percent with margins squeezed by Iamgold's low grade mines.
Iamgold's acquisition track record is also dubious. Worse, the company recently
expanded its stake in Columbia by signing an exploration agreement with Solista
Gold. Spending on grassroots might be exemplary but shareholders will have
to be patient again. Gold won't be produced from that area sometime - just
like Côté Lake which is a non-starter. Meantime, all-in costs
keep creeping up despite management's promises to lower costs below $1,200
an ounce (the upper tier of producers). Iamgold's Essakane Mine in Burkina
Faso is the only bright light here. The shares are a sell.

New Gold Inc.

New Gold had a good quarter, producing 106,000 ounces and 24 million lbs of
copper largely from New Afton in Canada. Mesquite, an open pit operation in
California produced 150,000 low cost ounces. Reserves stand at 18.5 million
ounces of gold and cash at $414 million. Guidance will increase with lower
costs as New Afton is expected to average throughput at 12,500 tonnes per day
this year. New Afton's ramp-up was relatively problem free and mill expansion
is key particularly from the promising E zone. Rainy River's feasibility study
at some 50 km northwest of Fort Francis in northwestern Ontario calls for gold
production of 325,000 ounces with an all-in cost of $736 per ounce. The mill
head grade is low at 1.44 g/t of gold but the eye opener is the development
capital cost will approach of $885 million and production is not slated until
2017. This megaproject while well robust is too iffy at that grade at current
prices. Nonetheless, we like New Gold with a solid balance sheet, growing output
and solid pipeline of projects.

Osisko Mining Corp.

Osisko received a hostile $2.7 billion take-under bid from Goldcorp. Osisko
claims that Goldcorp violated a confidentiality agreement which will be argued
in the courts. We believe that Goldcorp's bid is miserly and doesn't give credit
for the 10 million plus ounces of resources outside Canadian Malartic. Last
year Osisko produced 475,000 ounce at Canadian Malartic at a cash cost of $760
per ounce. Goldcorp will likely raise its offer or its bid may attract other
players. We like Osisko as a trade believing Goldcorp will either sweeten terms
or a white knight emerges.

Yamana Gold

Yamana reported a shortfall producing only 1.2 million ounces last year at
an all in cost of $950 per gold equivalent ounces and a $672 million impairment
charge. Newly opened Pilar experienced problems and flagship El Penon produced
less ounces. Yamana produces copper as a by-product and reports on a gold-equivalent
basis. Yamana has pared its capital to $150 million this year. Other than El
Penon, we believe Yamana's assets are of mediorcre quality and there are better
situations elsewhere.

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General Disclosures: This report is approved by
Maison Placements Canada Inc. ("Maison") which is a Canadian investment- dealer
and a member of the Toronto Stock Exchange and regulated by the Investment
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